Employment or Self-Employment Income during the Last Completed Taxation Year?

The Licence Appeal Tribunal (LAT) recently released its decision in Omoruyi v TD General Insurance Company, addressing important issues around employment classification and income replacement benefit (IRB) calculations under the Statutory Accident Benefits Schedule (SABS).

Employment Status at the Time of the Accident

The Applicant was working as a personal support worker (PSW) at the time of the October 13, 2023 accident. Prior to 2023, the Applicant was employed through a staffing agency (BHA), which issued T4s and deducted income taxes. Beginning January 1, 2023, the Applicant commenced working with a new staffing agency (SugiCare) which required them to register a business as an independent contractor to continue working. The Applicant did not receive a T4 in 2023, and income taxes were not withheld.

While the Applicant argued that they were effectively still an employee for various reasons, the Tribunal applied the definition of a “self-employed person” under section 3(1) of the SABS. Based on Canada Revenue Agency reporting, their business registration, lack of tax withholdings, and SugiCare’s classification of the Applicant as an independent contractor, the Adjudicator found that they were solely self-employed at the time of the accident.

This classification was pivotal: because the Applicant was not employed and was instead self-employed at the time of the accident and they could not access IRB entitlement calculations designed for employed individuals or those recently employed under section 4(2) of the SABS.

Pre-Accident Income Approach and IRB Calculation

After establishing the Applicant’s employment status at the time of the accident, the dispute then centered on the amount payable.

Key facts:

• 2022 income: $99,201 (as an employee of BHA)
• 2022 self-employment income: $0
• 2023 self-employment income: $43,791

Because the Applicant was found to be solely self-employed at the time of the accident, the Tribunal held that section 4(3) of the SABS applied. This section mandates that IRBs for self-employed individuals are solely based on income reported from the business in the last completed taxation year prior to the accident. In this case, that was 2022, when the Applicant had no self-employment income.  The Applicant argued that:

• They should be permitted to use their 2022 employment income, or alternatively,
• Their 2023 self-employment income should be used as the IRB base.

The Tribunal rejected both arguments, finding:

• Section 4(2)3 allows designation of prior-year employment income only when the person was both employed and self-employed for at least one year at the time of the accident, which was not the case here.
• Section 4(3) does not permit use of current-year self-employment income, regardless of earnings.

The Tribunal offered previous case law citing this approach.  The result: while the Applicant received employment income during the year prior to the accident, their income replacement benefit was $0 due to their employment status as a self-employed individual at the time of the accident and lack of self-employment income in the prior year.

Takeaway

Self-employed individuals must be mindful that if their business has no income in the year before the accident, their IRB quantum may be nil, even if they received employment income during the prior year. The Tribunal continues to apply a strict reading of SABS sections 4(2) and 4(3) when determining income replacement benefits.

Read the decision in full detail here: Omoruyi v TD General Insurance Company (24-005585/AABS)